The Global Nutcracker Called Peak Oil
By Jan Lundberg
Essay on the consequences to the world's economy when the realization finally strikes home that global oil production has begun its inevitable decline
February 20, 2005
Mr. Lundberg is the former publisher of the oil industry Lundberg Letter, from which he resigned to pursue a less fossil-fuel intensive lifestyle. He directs the efforts of Culture Change, a grass-roots effort to wean America off its over-dependence on oil and the automobile.
The end of abundant, affordable oil is in sight, and the implications are colossal. About now in our hydrocarbon phase of human history, we have pulled out of the Earth approximately half of the available petroleum (crude oil and natural gas). The other half still in the ground is harder to extract and may not - as assumed - fuel the global economy or even provide a transition to another phase.
To hope for an increase in discoveries is to turn a blind eye to the world trend in declining oil extraction which has been relentless for the past four decades. The approximate bell curve of petroleum extraction cannot be changed by any one big new discovery. Yet, the idea of "the Caspian" or any other mega-field du jour is an example of the constant hope for perpetual energy for high living in contradiction with nature.
The same can be said of the dominant assumption that petroleum will be replaced by other "technologies." This ignores the overwhelming petroleum-based infrastructure we have, and neglects to account for the lesser return on energy from non-petroleum sources of energy. But, "they" (scientists, leaders, corporations) will "think of something." Another common assumption popular among "radicals" is that "the ruling elite will refuse" to allow the global economy or the lucrative capitalist system to collapse.
If peak oil means we are at a half-way point, does this mean we now have years to either plan energy use or get used to recession, as claimed by many a writer on peak oil? Before the reader makes assumptions on how society may utilize the remaining store of petroleum, let me repeat what I told The Institute of Petroleum in London two years ago (on February 17, 2003):
"What the world went through in 1979’s oil crisis, which my former company warned of in the U.S., based on our projection of a 9% shortfall in gasoline deliveries, can happen again. The difference will be that global production of oil will be falling instead of increasing."
This means that the next tough oil shortage, even if it is not acknowledged as a post-peak oil extraction phenomenon of diminishing supply, will cripple the globalized economy. Understanding of both the economics and social dynamics of collapse is rare, and even when it is present there is an absence of taking into account the "market factor" in ushering in collapse.
Despite the need to be prepared for imminent, final energy shortage - which could happen now or in several years at the latest - people persist in focusing too much on the likely date of the passing of the peak. It is already clear that the oil industry and OPEC numbers on oil reserves are suspect. So we can simply offer a range of oft-quoted peak-oil arrival times: 2005-2012. Some more distant figures such as 2020 are based on infinite technological improvements on extraction and removing the problematic sulfur, for example. Factoring in the "irregular" petroleum sources, the peak year of world oil extraction is to be 2007, according to the Association for the Study of Peak Oil and Gas.
A flurry of peak oil stories hit last fall. But in general, the price of oil is deliberately about where the main players want it, as it is so profitable. So let us not look at the $50 price neighborhood as proof of peak oil being here now - although it may be a factor.
Taking peak oil doctrine further
The bell curve of oil "production" was devised by Marion King Hubbert, a Shell Oil and U.S. government geologist. Although Hubbert has on the whole been borne out except in the minds of fundamentalist-classical economists, what he did not factor in was collapse. Therefore, the curve will be truncated to a cliff just as the gap between supply and demand is felt and hits.
The scenario I foresee is that market-based panic will, within a few days, drive prices up skyward. And as supplies can no longer slake daily world demand of over 80 million barrels a day, the market will become paralyzed at prices too high for the wheels of commerce and even daily living in "advanced" societies. There may be an event that appears to trigger this final energy crash, but the overall cause will be the huge consumption on a finite planet.
The trucks will no longer pull into Wal-Mart. Or Safeway or other food stores. The freighters bringing packaged techno-toys and whatnot from China will have no fuel. There will be fuel in many places, but hoarding and uncertainty will trigger outages, violence and chaos. For only a short time will the police and military be able to maintain order, if at all. The damage that several days' oil shortage and outage will do will soon wreak permanent damage that starts with companies and consumers not paying their bills and not going to work.
After an almost instant depression seizes the modern industrialized world, and nation-states break down, the frantic attempts of people to feed themselves, stay warm and obtain fresh water (pumped presently via petroleum to a great extent), there will be no rescue. Die-off begins. The least petroleum-dependent communities will survive best. These "backward" nations will be emulated by the scrounging survivors of the U.S. and the rest of the "developed" world, as far as local food production will be tried - in a paved-over, toxic landscape by people who have lost touch with the land.
What about renewable energy and other alternatives? They are not ready, and will never be as long as oil is king. This is something not acknowledged by the boosters of the technofix. When oil abdicates, no one can fill the shoes. (See Culture Change Letters on the Technofixsuch as #77)
However, there will be replacement societies, starting with bands, tribes and rural communities that will start cooperating with each other as never before. The age of the bioregional country, based on cooperation and mutual aid will begin. A main job-category will be restoration of the land so as to provide a semblance of the diversity of food that Earth provided prior to petroleum farming. Social structures will no longer lend themselves to overcrowded workforces dependent on the dollar to buy goods and services from huge, distant and unaccountable corporations. Argentina may be a guide to post collapse society, with its egalitarian and worker/citizen controlled systems.
Awareness of the expected peak in global oil extraction is on the rise, but a debate on when the peak will hit has drowned out larger questions: How hard will the loss of abundant oil hit the economy? Can the consumer culture continue if the collapse includes die-off?
The reasons for not asking those questions in polite corporate company - on the mainstream news or in foundation-funded reports - include the blind faith in renewable energy as a cure-all, and the lack of understanding of petroleum's hold on daily lifestyles. Even if these factors are recognized, a news organization does not want to appear alarmist, and at the same time wants to cling to society's myths of progress and order forever.
The prospects of mitigating peak oil or avoiding collapse are almost nil. U.S. petroleum demand in 2004 grew at its strongest rate in five years. In December the daily consumption of refined oil was 21 million barrels in the U.S, a quarter of world use. The U.S. leads the industrialized world in population growth, part of a domestic policy to assure more car and oil sales.
More evidence of insanity by the world's biggest consumer, the U.S., is that the breaking point is flaunted: refinery utilization rate last year was the highest annual rate in six years at 92.8 percent of capacity. Lower 48 output of crude oil extraction declined the most ever in 2004 since 1999, and Alaskan production experienced its largest drop since 2000, declining 5.5 percent - peak oil "production" happened in the U.S. over three decades ago.
With the worldwide oil industry emulating these trends of maxing out, the still surging demand - China is the leader - strains production and hastens the day when the system can no longer accommodate growth. The Earth cannot, as of the world oil peak in extraction, give up ever greater quantities of black gold. Most of the world exporting companies are now reducing extraction rates due to fewer discoveries and depleted fields. Oil production in 18 producer countries has passed its peak and is declining faster than previously thought: at about 1.14 million barrels a day.
"International Energy Agency figures put the total spare capacity of all 11 countries in OPEC at just 330,000 bpd (down from 6 million bpd in 2002). Conventional Saudi spare capacity is zero... An IEA report from August 2004 indicates Saudi Arabia needs up to 800,000 bpd of newly discovered oil each year just to offset declining fields and maintain its current production level." [Al-jazeera] - this can't happen, so watch for the ensuing energy crisis.
More evidence that demand is out of control and pushing up the day of peak oil: "There is no spare refinery capacity, demand has outstripped all expectations." - Deborah White, Societe Generale bank, Paris
The world needs to produce another 2,723,530.2 barrels per day by the end of 2005 just in order to stand still, even by the IEA demand figures considered low by analysts.
We live in strange times: global warming from petroleum and other fuels is acknowledged as a certain and extremely grave threat, but we allow "policy" to continue holding above all else the maximum burning of petroleum. More roads are built for the guzzling coffins on wheels, even though road-repair funds (and library funds) go lacking as a result. The viciousness of the invasion of Iraq and the attempt to foil the designs of the great powers should serve to wake people up to wean themselves off petroleum. Nothing may finally tip public sentiment over to abandoning the oil life. People have already forgotten the huge oil spill off Unalaska Island, Alaska. But neither genocide, climate distortion, nor loss of wildlife habitat and fisheries - or that more nebulous concept of peak oil - have people thinking far ahead in the dominant culture, except in terms of self-aggrandizement. Fortunately, the loss of petroleum will probably mean the loss of the global culture of plastic materialism.
Petroleum is the Great Leveler, in the sense of "leveling" or flattening oil civilization. But petroleum will also be the Great Leveler in terms of equalizing everyone: People will go through a final, grasping petroleum grab with whatever funds and connections they have, before the attempt fails for good. Then all people will have no choice but to work together or perish. Until then, we have skewed values: for example, when a kindly old lady drives to a shop and has her charitable concerns, the use of oil makes her a killer of the planet and she is not pursuing a sustainable form of transportation. Meanwhile, a mean old man who scowls at little children who walks to the shop might be a much more valuable citizen in a practical fashion that matters to the world.
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